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My CIT Group Story

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September 30, 2009 – Comments (12) | RELATED TICKERS: CIT

As I have mentioned in previous posts, I dove into the bond market in my personal portfolios at the height of the credit market turmoil with both feet at the end of 2008 and beginning of 2009.  As someone who has followed bonds for a number of years, I had never seen anything like the amazing opportunities that I saw then.  Most of the bonds that I purchased were from relatively strong, blue chip companies like JPMorgan Chase, Alcoa, American Express, Corning, etc... 

However I dipped my toe into the water of complete junk with a number of small purchases, just to keep things interesting.  Most of the junk investments have worked out very well so far.  Textron made a tender offer of slightly over face value ($100) for its bonds that I bought at $75 that I recently gladly accepted. 

Two of the bond purchases that I made were in completely messed up companies that I believed the government would extend aid to.  Without this aid, the companies were in my opinion toast.

The first was in a subsidiary of AIG called American General.  This move worked out well.  The black hole that is AIG continues to suck money from the federal government as I thought it would.  I bought its 8.45% Senior Notes Due 10/15/09 for $42.25 earlier this year and ended up selling it on the open market for $95.5 earlier this month. 

The other investment didn't play out like I thought it would.  It was in a piece of trash called CIT Group.  At the time I believed that the financing that the company provides to small companies was critical enough to the economy that Uncle Sam would lend it a hand.  Much to my surprise, and probably delight as a tax payer, they did not.  Several months ago CIT's stock and bonds rallied when the company was thrown a temporary lifeline from its major bondholders.  After looking into the terms of the expensive, short-term financing it was apparent to me that this was far from a permanent fix for this broken company and I sold the 5.40% 2013 Senior Notes that I bought several months earlier at $51 for $53.  I made a tiny profit and collected an interest payment along the way, but mainly I was relieved to have washed my hands of this crappy company.

In retrospect, I left a little money on the table by selling this bond when I did, but all in all I am happy with the decision that I made.  This morning news broke that the company is essentially teetering on the verge of bankruptcy, CIT scrambling to line up 11th hour rescue.  The 40% drop in its stock will be a boon to my CAPS score after I shorted it at $1.50/share several weeks ago.  I may have left a little money on the table with the bonds, who know for certain at this point but I learned a lot and I reinvested the proceeds from this investment much more conservatively.

Deej

12 Comments – Post Your Own

#1) On September 30, 2009 at 10:26 AM, alstry (35.16) wrote:

Let me tell you my experience with a background in Law.

The government can take your child if we go to war.

The government can confiscate your gold if it deems it is in the national interest.

The government can strip you of your civil liberties and tell you it is to protect your life even though our parents and grandparents gave up their lives to protect our civil liberties.

The government can now force you to take an immunization shot which can kill you.

They can subject you to lethal crowd control devices for peacefully demonstrating or simply partying.

What do you think the government can take when the G-20 says it can't print anymore?????

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#2) On September 30, 2009 at 10:33 AM, TMFDeej (99.43) wrote:

Ahhhhh, you're right.  Anarchy should reign free and there should be absolutely no government.  Like most things in life, some government = good / too much government = bad.  The truth usually lies in the middle of the extremes.

What does this have to do with my story about investing in CIT Group, which was absolutely riviting if I do say so myself.

Deej

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#3) On September 30, 2009 at 10:37 AM, alstry (35.16) wrote:

You will soon find out....I promise.

And by the way, I always recommend your blog as I think they are pretty good...even though we may disagree.

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#4) On September 30, 2009 at 10:43 AM, Huayra (< 20) wrote:

I bought CIT as a speculative play @ $0,50 and sold about a month ago I think @ $ 1,35.

That was also a bit to soon maybe, but i had another investment I liked so no problem.

It's always the same with these kind of companies, once they are in so deep and can get only a 3 billion lifeline at ridiculous rates you know it's like the Titanic waiting to sink.

You made a good investments. Buy low, make some money, and get out before the next bump in the road appears. These are never long-term plays, but if you can make a couple of hunderd bucks it's all good!

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#5) On September 30, 2009 at 11:25 AM, bigcat1969 (92.30) wrote:

Actually a certain government controlled bank may be about to give them another lifeline, so the stock might just bounce back up.  This makes sense if the gang in DC is worried about CIT failing, but doesn't want to directly bail them out.  Of course since they owe more than they are worth, I'm not sure what the loan would be backed with...

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#6) On September 30, 2009 at 11:51 AM, davejh23 (< 20) wrote:

bigcat,

Are you talking about the rumors from yesterday?  The stock surged 35%, the rumors were shown to be false after hours, and the stock is down just as much today. 

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#7) On September 30, 2009 at 12:04 PM, PdoBear (< 20) wrote:

My CIT story: Listened to Cramer. Bought RIMM last week and CIT this week. Now sitting in an ally holding a pipe and lying next to a sign last seen in "Citizen Toxie: The Toxic Avenger Part IV".

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#8) On September 30, 2009 at 1:11 PM, bigcat1969 (92.30) wrote:

No davejh23, Citigroup and possibly Barclays may be offering billions in loans.  A lot is speculation at this point, leaked rumors, who knows what else.  Sill I can see where Citi bailing out CIT on behalf of the government makes sense, if the adminstration is getting cold feet about the posible failure.

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#9) On September 30, 2009 at 2:12 PM, TMFHelical (98.71) wrote:

Deej,

 

The deep drama of owning CIT debt aside (and I expect your 'review' doesn't quite do justice to the entire movie as it played).  You may enjoy today's blog from Annal Capital Management which is on the topic of corporate debt.

 

http://www.annaly.com/blog/?p=537

 

TMFHelical

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#10) On September 30, 2009 at 2:37 PM, TMFDeej (99.43) wrote:

Thanks for the link, Helical.  I'll definitely check it out.

Bond yields are absolutely terrible right now.  They're less than half of what they were earlier this year in many instances.  The only things that I have been able to find that are remotely interesting lately are Leucadia National and UZV.

The low rates that are out there right now are great for businesses, but they don't do a lot to boost my confidence in the markets.  They're getting as bad as when there was absolutely no risk aversion whatsoever out there pre-credit crunch.

Deej

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#11) On September 30, 2009 at 3:23 PM, TMFDeej (99.43) wrote:

BTW, Helical, you were absolutely right when you said

I expect your 'review' doesn't quite do justice to the entire movie as it played

The long, unedited version of the CIT tale contains much more sex and violence.  Alas, I cannot share the juicy details here.

Deej

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#12) On October 06, 2009 at 8:50 PM, USNHR (31.81) wrote:

Sex and Violence in bonds, who knew investing could fill ones appetites so fully?

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